HONG KONG, Sept 25 (Reuters) - Chinese e-commerce giant Alibaba Group Holding Ltd will pursue an IPO in the United States after talks with Hong Kong regulators broke down, a move bound to set off a dogfight between the two main U.S. stock exchanges for the offering.

The loss of the sale, which bankers have estimated to be worth more than $15 billion, is a blow to the Hong Kong stock exchange, as the deal would have added to its clout and trading volumes.

The negotiations foundered after regulators decided they would not allow Alibaba’s partners to retain control over board nominations, maintaining that all shareholders should be treated equally, sources said.

A U.S. listing for Alibaba would come at a time when the NYSE Euronext is seeking to snatch business away from the Nasdaq OMX Group, traditionally home to tech companies, after Facebook Inc’s debut was marred by glitches on the exchange.

Social media network Twitter Inc is leaning toward picking the New York Stock Exchange over Nasdaq for its highly anticipated initial public offering, a person familiar with the matter told Reuters.

Alibaba, which some analysts estimate to be worth up to $120 billion, is the most anticipated Internet IPO since Facebook’s $16 billion offer last year.

The company commands 80 percent of China’s e-commerce market and consumers bought a combined 1 trillion yuan of goods last year through Tmall and Taobao, Alibaba’s main market platforms, up 58 percent from 2011.

The decision ends weeks of negotiations between Alibaba, the Hong Kong stock exchange and the city’s securities regulator over Alibaba’s shareholding structure.

“We’ve come to the end of dialogue with Hong Kong and we’re pivoting to the U.S. to start the listing process,” said a company source familiar with the discussions.

In the United States, Alibaba is unlikely to pursue a traditional dual class stock structure used by companies like Facebook Inc and Google, a source said. Under a conventional dual class structure, founders and management have more voting rights than traditional shareholders.

Instead, Alibaba is focused on a structure that would allow its partners to keep control over a majority of the board, the source said.

Alibaba has engaged U.S. law firms to start working on its IPO and will soon be hiring banks to manage the listing, said the company source, who was not authorized to speak publicly on the matter.

Reuters has previously reported that Credit Suisse has been working with the company on preparing an IPO and is expected to land a lead role in the offering. Morgan Stanley is also expected to win a prime role in the IPO.

No official decision has been made as to which investment banks will underwrite the offering, sources said on Wednesday.

Alibaba and the Hong Kong stock exchange declined to comment.

GOOD TIMES

A U.S. listing by Alibaba would come on the heels of a 25 percent rally in the Nasdaq Composite index so far this year. It would also come at a time when shares of Chinese Internet companies are surging, with Tencent Holdings and Baidu Inc up 62 percent and 50 percent respectively this year.

“Certainly, from a market perspective it’s a terrific time to be in the market for the Internet companies out of China,” said a source familiar with the Alibaba plans. “We’ve all seen how Tencent, Baidu, etc, have traded and the global Internet stocks are doing great.”

The IPO would ride a wave of bullish views on the company after its revenue soared 71 percent in the first quarter to $1.4 billion, with profits nearly tripling to $669 million, according to figures released in July by Yahoo Inc, one of its key shareholders.

Yahoo, which owns 24 percent of Alibaba, and Japan’s Softbank Corp which is its biggest shareholder with 35 percent, stand to reap huge windfalls from an IPO as Alibaba’s market valuation would add billions of dollars to the two companies’ assets. Yahoo is also keen to sell part of its stake.

Executive Chairman Jack Ma, former chief financial officer and co-founder Joe Tsai and other company executives own about 10 percent. Singapore state investor Temasek Holdings Ltd and China Investment Corp are among other investors in Alibaba.

HKEX IMPACT

Hong Kong’s failure to secure the mega listing means both lost revenues and the marketing clout to attract other deals, rubbing salt into wounds caused by falling trading volumes and a thin IPO pipeline.

The IPO was of such significance to Hong Kong Exchanges and Clearing (HKEx) that top exchange officials took the rare step of lobbying the Securities and Futures Commission to make rules more flexible so that it could list in the city, according to a local media report.

Hong Kong regulators and exchange officials held tough to their stance of not allowing an Alibaba shareholding that was deemed unfair by other stock holders.

“...as enshrined in our charter, in the event of a conflict, public interest is put ahead of shareholder interest at HKEx,” Charles Li, chief executive of the exchange, wrote in a blog post on Wednesday.

To read the blog click on:

The conflict between the commercial interest of the HKEx and its powers as a regulator has prompted some calls for the exchange to be stripped of regulatory powers.

“This ongoing conflict of interests for HKEx is not in the interests of Hong Kong or investors at large,” David Webb, a member of the SFC’s Takeover and Mergers Panel said last week. He argued HKEx’s listing unit be merged with the SFC’s corporate finance division to create a new listings and takeovers authority.

While the financial impact would have been small to begin with - analysts surveyed by Reuters estimated an Alibaba IPO to add about $25 million to HKEx’s annual revenues - the knock-on effects were expected to be huge.

Alex Wong, a director at Ample Financial Group estimated Alibaba would add about 5 percent to HKEx’s daily turnover and attract huge retail interest similar to that of Tencent.

Tencent’s market value has grown to about $96.5 billion from just $800 million when it listed in 2004. It accounts for about 3 percent of HKEx’s average daily turnover and is among the top five traded stocks on the exchange.